Labor-share dynamics: The role of import competition

Arbeitspapier

Does increasing product-market competition from foreign firms affect domestic labor shares? By combining detailed Swedish firm-level data with an instrumental variable design, I show that an increase in import penetration caused by increased global competition results in a decrease in domestic industry-level labor shares. The decrease comes both from a reallocation of firms' market shares and a fall in labor shares at the firm level. The analysis shows that the negative effect of competition on firm-level labor shares is driven by an increase in productivity that is not met by a corresponding increase in compensation to labor. I use these findings to calibrate a heterogeneous-firm model where domestic and foreign firms compete on the domestic product market. The calibrated model predicts that an increase in foreign competition corresponding to a one standard deviation increase in import penetration results in a 1.12 percentage point increase in welfare.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2021:13

Classification and Topics

• Classification: Wirtschaft ; Aggregate Factor Income Distribution ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Trade: General
• Subject: Labor Share ; Competition ; International Trade ; Welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Paulie, Charlotte
• Event: Veröffentlichung
• (who): Institute for Evaluation of Labour Market and Education Policy (IFAU)
• (where): Uppsala
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/246049
• Last update: 10.03.2025, 11:44 AM CET